A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. In the past 10 years Far East Orchard Limited (SGX:O10) has returned an average of 3.00% per year to investors in the form of dividend payouts. Should it have a place in your portfolio? Let’s take a look at Far East Orchard in more detail. Check out our latest analysis for Far East Orchard

5 questions I ask before picking a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Is its annual yield among the top 25% of dividend-paying companies?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has it increased its dividend per share amount over the past?

• Can it afford to pay the current rate of dividends from its earnings?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

Does Far East Orchard pass our checks?

Far East Orchard has a trailing twelve-month payout ratio of more than 200% of earnings, meaning that the dividend is predominantly funded by retained earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward. If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Although O10’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time. In terms of its peers, Far East Orchard has a yield of 4.08%, which is high for Real Estate stocks.

Next Steps:

If you are building an income portfolio, then Far East Orchard is a complicated choice since it has some positive aspects as well as negative ones. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three relevant factors you should further research:

• 1. Valuation: What is O10 worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether O10 is currently mispriced by the market.

• 2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Far East Orchard’s board and the CEO’s back ground.

• 3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.